What CAC and LTV mean
Customer acquisition cost (CAC) is what you spend to win one new customer. Lifetime value (LTV) is the profit that customer brings over all their orders. A shop grows safely when LTV is clearly higher than CAC.
Profit per order = order value × margin
LTV = profit per order × orders per customer
LTV to CAC ratio = LTV ÷ CAC
LTV here is counted in profit, not revenue. Comparing revenue with CAC makes ads look far better than they are.
Example
| Line | Amount |
|---|---|
| CAC ($500 ÷ 25 customers) | $20.00 |
| Profit per order ($40 × 50%) | $20.00 |
| LTV ($20 × 2.5 orders) | $50.00 |
| LTV to CAC ratio | 2.50 : 1 |
| Profit on the first order after CAC | $0.00 |
| Lifetime profit from the 25 customers after marketing | $750.00 |
The first order only pays back the ad cost. The profit comes from the 1.5 repeat orders, so this shop depends on customers coming back.
Reading the ratio
| LTV : CAC | What it means |
|---|---|
| Below 1 : 1 | Each customer costs more than they bring. Stop or fix the campaign. |
| 1 : 1 to 2 : 1 | Marketing roughly pays for itself, with little left for other costs. |
| About 3 : 1 | A widely used rule of thumb for a healthy balance. |
| Well above 3 : 1 | Profitable; you may be able to spend more to grow faster. |
The 3 : 1 figure is a rule of thumb, not a law. A shop with slow repeat orders needs more cash to wait for the payback than one whose customers return in a month.
Using it in a small shop
- If customers buy once, LTV is one order's profit. Then CAC must stay below the profit per order, which is the same as the break-even ROAS rule.
- Measure repeat orders honestly. Count orders per customer from your own order history, not from a hope.
- Plan the campaign. The Facebook ads calculator and Pinterest ads calculator estimate sales and cost per sale from a budget.
This calculator uses only your own numbers.
Frequently asked questions
How do I calculate CAC?
Divide what you spent on marketing in a period by the number of new customers won in the same period. $500 of ads and 25 new customers is a CAC of $20.
How do I calculate customer lifetime value?
For a small shop: average order value × profit margin × the number of orders a customer places over time. $40 × 50% × 2.5 = $50.
What is a good LTV to CAC ratio?
A common rule of thumb is about 3 to 1. Below 1 to 1 you lose money on each customer.
Should LTV use revenue or profit?
Profit. Product costs, shipping and fees must be paid from each order, so only the margin is available to pay for marketing.
Last reviewed: November 2026 · By Muhammad Shujah Uddin Qazi · How we check rates · Fee changes tracker